Party who took possession of property, took over payments on debt owed by property owner and secured by a mortgage on the property, and executed a new document purporting to be a mortgage on the property, did not thereby acquire ownership of property.

Trial court did not err in holding party personally liable for rental payments when that party had personally engaged in negotiations for the rental and had not formed a corporation until about the time he took possession of the property, and where all transactions were so informal that it was not clear property owner intended to deal with a corporation rather than an individual.

Counsel : For the Appellants, Asaua Fuimaono For the Appellee, John Ward

Per KENNEDY, J:

Plaintiff Fiapaipai Filoiali'i is the administratrix of the estate of her late father, Fili M. Liufau. In 1980 Liufau obtained a loan from the Development Bank for construction of an industrial building in the American Samoa Government-owned Industrial Park at Tafuna. Liufau's loan of $100,000 was at a seven percent interest rate, and required payments of $776 per month. Liufau executed a promissory note secured [3ASR2d106] by a mortgage on both the realty and personalty on the property. Liufau also entered into a lease agreement with the government, however, granted a "rent moratorium" for three years.

In 1981 Liufau was killed, and his daughter, the plaintiff here, took over operation of Liufau's business. The business fell on hard times, and the loan payments to the Development Bank fell into arrears.

In late 1982, William Adams began negotiations with the Development Bank. In 1983 Adams executed a "mortgage" and moved on to the premises under an agreement to pay the Bank$1,400 per month, provide insurance, and pay the $226 per month monthly rental to the government. Adams executed a "mortgage" to secure these amounts. At approximately the same time, Adams incorporated Quality Furniture. Plaintiff was not a part of these negotiations and did not execute any agreements to approve the transaction, though apparently she had some knowledge of it. She moved out when Adams moved in.

The agreement between Adams and the bank called for $776 of the $1,400 payment to be committed to the interest and principal of the original loan, the balance to be committed to arrearages, and, it seems, any further balance to be returned by the bank. Adams did not pay the full $1,400 per month. His total payments of $30,263.65 were enough to satisfy the original loan and its arrearages, but were $20,136.35 short of the $50,400 (36 monthsat $1,400per month) that Adams promised to pay. In addition, Adams failed to make approximately $7,000 in payments on lease payments to the government, and $2,086.25 in insurance payments.

The trial division, in the exercise of its equitable powers, gave judgment as follows: first, the court declared that Adams and Quality Furniture had acquired no interest in the property through its purported mortgage in 1983, and that the plaintiff still owned the property subject to the original loan; second, the court determined that Adams and Quality Furniture had entered the property under an implied lease with the plaintiff as administratix for rental payments of $1,400 per month plus the amounts owed to the government for insurance; third, the court determined that Adams and Quality Furniture were in breach of the lease [3ASR2d107] with the Plaintiff, and had joint liability to the plaintiff for over $29,000.

On appeal Adams and Quality Furniture make two main arguments. First, they argue that Adams cannot be personally liable because he did business only as president of Quality Furniture. Second, Adams and Quality Furniture argue that the trial division erred in the exercise of its equitable powers. We reject both contentions and affirms.

There were sufficient facts to support the court's determination that Adams had joint liability with the corporation. Adams did not incorporate until approximately the time that he took over the premises. Further, the whole transaction was conducted in an exceedingly informal manner. Under these circumstances, we are unable to say as a matter of law that Adams is entitled to hide behind his corporate shell.

We also think that the court was correct in the exercise of its equitable powers. Adams and Development Bank, acting by themselves, could not possibly terminate the plaintiff's interest. The court's finding of an implied lease on the terms of the "mortgage" worked out between Adams and Development Bank was perfectly reasonable given that possession, but not title, had passed. We think that the trial division's judgment was supported factually and was eminently fair. The judgment of the trial division is AFFIRMED.

*Honorable Anthony M. Kennedy, Judge, United States Court of Appeals for the Ninth Circuit, serving by designation of the Secretary of the Interior.